corporate governance

• What is Corporate Governance?

  s the system by which companies are directed and controlled
• responsibilities of the Board of directors

  • Setting the company’s objectives and aims

  • Determining the strategy to achieve those aims and objectives

  • Providing the leadership to put them into effect

  • Supervising the management of the business

  • Reporting to shareholders on their stewardship of the business
• Divorce between Ownership and Control

  the owners of a business do not control the day-to-day decisions made in the business
• Dealing with the Divorce between Ownership & Control

  • Ensuring that financial rewards and incentives offered to managers are aligned with shareholder holder interests - e.g. based on the share price, dividends, profits achieved

  • Implementing suitable corporate governance procedures to ensure shareholders are protected as far as possible (e.g. through non-executive directors, management remuneration committees)

  • Company legislation ensuring that Directors are accountable for their actions to shareholders.
• The Growth of Activist Shareholders

  Activist shareholders look to put pressure on existing management or force through changes to management boards. Some insist on businesses using profits to buy-back shares to increase returns to existing shareholders. An activist shareholder uses an equity stake to put pressure on existing management
• The essential elements of "best practice" corporate governance

  • The CEO and Chairman of companies should be separated

  • Boards should have at least three non-executive directors, two of whom should have no financial or personal ties to executives

  • Each board should have an audit committee composed of non-executive directors